What is Buyout Agreement Drafting?
A buyout agreement is a legal contract that outlines what should happen if a business owner’s share in the company is sold or transferred.
This could occur if the business owner leaves, dies, or retires. The agreement outlines all the terms required to make the process smoother and avoid disputes, so it has to be clear and balanced.
Read the rest of this article to explore buyout agreements and how to draft them. We’ll also feature information about how a qualified lawyer can help you ensure the document is well-structured.
What Does a Buyout Agreement Include?
A buyout agreement usually includes key terms such as the following:
- Payment terms. How the payment is calculated and if it’s a lump sum or installments must be included.
- Non-compete clause. This restricts the partner who’s leaving the company from working with a competitor for a specified amount of time.
- Triggering event. This outlines the exact circumstances that will trigger the buyout, such as disability or resignation.
- Valuation. The valuation is the method used to determine the share price.
- Ownership. How transferring of shares will occur must be clearly specified.
- Dispute resolution. Should there be a disagreement, this section of the agreement must specify what dispute-resolution method will be used, such as arbitration or mediation.
What are Tips for Buyout Agreement Drafting?
When drafting a buyout agreement, there are some essential tips to consider so that it’s clear and avoids disputes. If a buyout agreement isn’t professionally drafted, this can result in a legal battle at a later stage, which you want to avoid.
Use Accurate Party Details
One of the first things to ensure is included in a buyout agreement is the correct details of all involved parties. This should include their legal names and contact information. Any inaccuracies can have legal implications, so it’s essential to check that everything is correct.
This section of the agreement should also include information about who has decision-making authority.
Provide Clear Triggering Events
The event that can cause a buyout needs to be clearly specified so that there’s no confusion over when it will take place. If there are vague triggering events stated, such as an untenable working relationship, this can be open to interpretation and cause problems.
Define the Value
The business or shares that are valued must be included so that fairness is encouraged. This might be an agreed value or appraisal, for example. The most common valuation methods include:
- Book value. This decides the value by considering assets minus liabilities.
- Fair market value. This considers what a buyer would pay, taking market conditions and the company’s potential into account.
- Independent appraisal. This method involves hiring an independent appraiser to value the business.
Set a Clear Payment Schedule
For clarity, all parties involved should know what payment will be made and how it will be structured (such as in a lump sum).
Include Fair Non-Compete Clauses
Although you’ll want to prevent the partner who’s leaving from working with competitors, this should be reasonable so that it doesn’t have a too-broad restriction.
Establish Parties’ Roles
The parties’ duties during the buyout process must be clearly defined. If there are any disagreements over responsibilities, they can be negotiated. This is a great opportunity to resolve them before the agreement is finalized.
Identify the Parties’ Interests
The parties’ goals and interests must be considered when drafting a buyout agreement. This will ensure that the contract is aligned with what’s most important to everyone included, and it can prevent future disputes.
Why Should a Lawyer Help You Draft a Buyout Agreement?
At first glance, a buyout agreement can seem straightforward, but taking on the responsibility of drafting it can be challenging and increase your risk of disputes in future. A lawyer can help you draft a legally-solid and clear buyout agreement.
Here are some ways in which a lawyer can help you throughout the drafting process:
- A lawyer will check that the buyout agreement is tailored to your specific situation and company.
- They’ll guide you through the challenging aspects of the process, such as complex negotiations.
- They’ll avoid any vague or ambiguous terms that can result in misinterpretations.
- They’ll check that the buyout agreement complies with all relevant tax, employment, and corporate laws.
- They’ll consider industry-specific concerns to customize the agreement and ensure it covers all risks.
- They’ll avoid any errors or missing sections that could result in liabilities.
- They’ll safeguard your interests and ensure the agreement is balanced.
- They’ll explain the difference between different buyout types to help you choose the best option.
- They’ll conduct a risk assessment so you can identify any potential challenges, either during or after the buyout process.
- They’ll cooperate with other professionals, such as tax advisors, to ensure the agreement protects you.
Where to Get a Lawyer to Draft a Buyout Agreement
If you need to find a lawyer to draft your buyout agreement, you don’t have to struggle to find one. The process is easy on online legal platforms such as ContractsCounsel, an online legal marketplace where clients can connect with lawyers who have been vetted on the platform. They have the expertise to guide you through the process of buyout agreements.
Here’s how to request a buyout agreement drafting in five easy steps:
1. Go to the ContractsCounsel marketplace, where you can post your project (or request) for free.
2. Include a few details of what you need so you match with the right lawyer.
3. Instead of searching for lawyers, you’ll receive multiple bids from lawyers directly on the platform who can assist you.
4. Once you receive the lawyer bids, you can review the lawyers' profiles. Now’s a great time to review lawyer data provided by the platform, such as the lawyer’s location, client ratings, years of experience, and field of expertise.
5. Connect with a lawyer you think is best suited to your requirements and hire them to draft your buyout agreement.
